Mezzanine Financing for Wind Projects

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Mezzanine Financing for Wind Projects

• Mark Henderson
• European Wind Energy Conference
• 28 February 2006, Athens

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Investec

• Founded South Africa 1974
• Dual-listed in Johannesburg and London
• Market cap c. 4.5 billion
• Assets 30 billion
• Assets under management gt 65 billion
• Acquired European Capital 2002
• Shareholder in Viridis Energy
• Mezzanine in Power sector

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What is Mezzanine Finance?
Mezzanine (n), Italian An intermediate level
between floor and ceiling occupying a partial
area of the floor space

• A middle layer of debt below the senior debt
  layer and above the equity layer

• Mezzanine finance shows characteristics of both
  debt and equity.

• There is no strict definition of mezzanine
  capital

• Mezzanine Finance general term to describe
  various financing arrangements that rank below
  the senior debt

• Junior debt
• stretched senior
• Subordinated debt

• high yield
• Convertible
• exploding

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Why have Mezzanine Finance?
Need for Project Sponsors
Missing Funding
Covered by

• Reduce equity commitments
• Over 5 billion new projects in Europe alone
• Needs gt1billion equity every year
• Plus need for new development funds
• Fills funding gaps
• Development period 2 5 years per project
• Periods until grants received
• Bank vs. Sponsor base case

Either More Equity
Or - Mezzanine
DEBT
Total Project Cost
DEBT
EQUITY
EQUITY
Sponsor Base Case
Bank Base Case
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Why have Mezzanine Finance?
Benefits to Project Sponsors

• ? Leverage additional cashflows
• Reduces equity requirement
• ? Less project equity required
• Increases equity returns
• ? Not diluting equity
• Maintains control

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Structure
Either
Or
Sponsor
Sponsor
Mezz Co
Mezz Lenders
Mezz Lenders
Project Co
ProjectCo
Senior Lenders
Senior Lenders
Intercreditor
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Mezzanine Characteristics

• Ranking behind senior in cashflow waterfall
• Second ranking security
• But ahead of equity
• May have conversion rights

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Conclusion

• Growing need with growing wind market
• Benefits to Project Sponsors
• Flexibility in structuring
• But banks need flexibility in risk appetite